On July 1, 2008, Agincourt Inc. made two sales. 1. It sold land having a fair market
Question:
On July 1, 2008, Agincourt Inc. made two sales.
1. It sold land having a fair market value of $700,000 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,101,460. The land is carried on Agincourt’s books at a cost of $590,000.
2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable annually).
Agincourt Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.
Instructions
(a) Record the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2008. (Round to the nearest dollar.)
(b) Assume that Agincourt uses the fair value option for the note issued in exchange for the land. Prepare the entry at December 31, 2008, if the fair value of the note is $720,000.
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
Step by Step Answer:
a 1 7108 Notes Receivable 1101460 Discount on Notes Receivable 401460 Land 590000 Gain on Sale of La...View the full answer
Intermediate Accounting principles and analysis
ISBN: 978-0471737933
2nd Edition
Authors: Terry d. Warfield, jerry j. weygandt, Donald e. kieso
